Wednesday, 14 September 2005

Northwest Airlines and Delta Air Lines are bankrupt

Just before the close of business today at the courthouse in New York, Northwest Airlines and Delta Air Lines (including its Comair subsidiary and its Song brand) petitioned for protection from their creditors under Chapter 11 of the Federal bankruptcy laws.

United Airlines, US Airways, ATA Airlines (“American Trans Air”), and Aloha Airlines are already operating in bankruptcy.

If you already bought tickets on an airline that has filed for bankruptcy protection, don’t panic. You are at risk of losing your money and not being able to travel, but there’s not much you can do about it.

If you haven’t bought tickets yet, don’t buy tickets on an airline that is already bankrupt. A bankruptcy filing is your final warning before an airline could be shut down by the bankruptcy court, leaving ticket holders stranded. A better schedule, a more direct route, or a lower price probably aren’t worth the greater risk that you might not get where you are going at all, or might not get back home.

Plan for the possibility of substantial changes to routes and schedules. As long as the airline is still operating, you’ll probably still arrive sometime the same day as was originally scheduled, but be prepared for a daytime flight to become an overnight flight, or vice versa, after you’ve bought your tickets. Allow a generous amount of extra time (at least overnight, preferably 24 hours, the more so the more important the appointment) between your scheduled flights and any time-critical events such as business meetings or the departure of a tour or cruise.

Delta claims that, “Your travel plans are secure”, “You can count on [our] flights”, and “Your SkyMiles are secure”. Northwest “emphasized that it will continue to operate normally”.

All of these statements are at best misleading, and at worst fraudulent. As I explain in more detail in my FAQ about Airline Bankruptcies , and as I’ve been explaining in a series of interviews with other journalists today, the petition for bankruptcy protection puts the decision as to whether Delta will be allowed to continue to operate, to honor previously purchased tickets, or to operate its SkyMiles frequent flyer program (which it could shut down at any time, even without bankruptcy) in the hands of the bankruptcy court, not the airline’s management. Indeed, today’s filings by both Delta and Northwest include motions like this one from Delta and this one form Northwest for permission from the courts (which will probably be granted initially, but could be withdrawn at any time) to operate flights, honor tickets, and operate frequent flyer programs — or shut them down.


By this motion … the Debtors request entry of an order … authorizing but not directing them in their business judgment to (a) perform and honor such of their prepetition obligations related to the Customer Programs [which “include, among others, advance ticket sales”] as they deem appropriate and (b) continue, renew, replace, implement new, and/or terminate Customer Programs as they deem appropriate.


By this Motion, the Debtors request that this Court enter an order … authorizing (but not directing) the Debtors to pay or honor pre-petition obligations to … customers.

Is this consistent with the claims on their Web sites and in their press releases? I don’t think so. But of course, you can’t sue them for fraud, or for anything else, while they are in bankruptcy. All the potential ticket buyer can do is beware.

Delta’s use of the term “secure” is particularly deceptive: It suggests that payments for tickets are “secured”, when in fact ticket holders are “unsecured” creditors. Bankruptcy is not secure, and the airline itself can make no promises about what the courts will decide. Anyone else lending money to a bankrupt airline will demand real security for their loans. Customers paying for future travel should do likewise — in effect, they are giving the bankrupt airline interest-free, unsecured loans.

More background information, advice, and news reports I’m quoted in:

[Updated 17 September 2005 to add links to, and quotes from, the actual bankruptcy filings, and more news clips. Note note that the headlines on some of these news storeis are directly contrary to my own comments in the articles.]

Link | Posted by Edward on Wednesday, 14 September 2005, 17:21 ( 5:21 PM)

So, 3 years later, with a merger in sight, what's your take?

Posted by: Terry Grim, 28 April 2008, 14:43 ( 2:43 PM)
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